Tax Exempt Religious Organizations: Why U.S. Churches Should No Longer Be Tax Exempt
In an effort to stem massive debt accumulation, the Italian government made a historic change in 2013 tax code to boost revenue: the Roman Catholic Church will no longer be exempt from property taxes in Italy. In the face of our veritable staircase of fiscal cliffs, it is tempting to reconsider religious organization exemptions in the United States. While it is reasonable to keep some religious exemptions, the Italian’s decision brings to light important aspects of our tax code that might be due for change.
First, the lack of transparency of religious institutions’ income and assets is shocking. Except for religious institutions, all tax-exempt organizations with annual income above $5,000 are required to file tax returns. In addition, there are restrictions, at least for the churches, on when they can be audited. The lack of reporting for religious institutions means we do not know how much revenue to expect from rescinding tax exemptions for religious institutions. For the sake of basic transparency, religious institutions should be held to the same reporting requirements as other tax exempt institutions.
In addition to the lack of transparency, it is vital to consider whether any multi-billion dollar operation, religious or otherwise, should enjoy sweeping tax exemptions on their assets. What exactly does the tax exemption promote if an organization already has more than enough money to run its activities from individual contributions?
It seems like these exemptions send the wrong message. For example, the individual tax deduction for charitable donations creates an incentive for individuals to dedicate income to social welfare enterprises. In contrast, the tax deduction for religious institutions on million-dollar properties and on personal expenses seems to provide incentive negative actions, such as making false claims that their activities are religious. Additionally, religious activities are not as verifiable as other social welfare activities, meaning more people can get away with false claims.
While it is not necessarily in the United States' best interest to develop an Italian-inspired bill to remove religious tax exemptions, the Italian example would be a good starting point to reflect upon holding religious organizations to the same tax reporting standards as everyone else.